CBI says CGT reforms has 'damaged' relations

Shadow Chancellor, George Osborne said: it is in fact a £700m tax rise on enterprise

By Richard Tyler, Enterprise Editor

12:01AM GMT 25 Jan 2008

The CBI has warned that Alistair Darling's £200m capital gains tax concession still leaves relations between the Government and business "damaged".

Responding to four months of intense lobbying, the Chancellor yesterday offered business owners a £1m lifetime capital gain allowance that will attract a 10pc tax rate.

But Richard Lambert, the CBI's director general, said that while the so-called "entrepreneurs' relief" was "superficially quite clever" it still "seriously clobbered" entrepreneurs who were the country's "real wealth creators".

"Even the smallest business owner will lose taper relief and indexation and be worse off than before October," said Mr Lambert.

"The bottom line is that the reaction of the UK government, in the face of an economic slowdown, has been to slap on a major tax hike of £700m. This will have a damaging effect on job creation, investment and savings at exactly the wrong time in the economic cycle," he added.

The CBI had argued for a complete reversal of Mr Darling's plan to abolish the current 10pc CGT rate on the rise in value of business assets held for more than two years and the scrapping of a valuable historical relief against inflation, called indexation.

Instead, Mr Darling opted for a capped allowance charged at 10pc from April 6 that he said would cover 90pc of all business sales and would cost him £200m a year. Any gains over the £1m limit would be charged at the new 18pc rate.

The Government is understood to have been so concerned about the CBI's reaction to its proposal that Alistair Darling chose to brief Mr Lambert personally about his plans on Tuesday evening ahead of meetings held on Wednesday by Treasury ministers with other leading business groups.

But yesterday Mr Lambert said the relationship between business and the Government had been "damaged" by the affair and would "take time and effort to rebuild".

The Tories joined the attack on the Chancellor's proposals. Shadow Chancellor, George Osborne said: "Alistair Darling called this package a £200m tax cut. It is in fact a £700m tax rise on enterprise at the very moment when we face the greatest economic difficulties."